November 2018 Safe Harbor Statement and Non-GAAP Measures Certain - - PowerPoint PPT Presentation

Monro, Inc. Investor Presentation November 2018

Certain statements in this presentation, other than statements of historical fact, including estimates, projections, statements related to our business plans and operating results are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Monro has identified some of these forward-looking statements with words such as “anticipates,” “believes,” “expects,” “estimates,” “is likely,” “predicts,” “projects,” “forecasts,” “may,” “will,” “should,” and “intends” and the negative of these words or other comparable terminology. These forward-looking statements are based on Monro’s current expectations, estimates, projections and assumptions as of the date such statements are made, and are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward- looking statements. Additional information regarding these risks and uncertainties are described in the Company’s filings with the Securities and Exchange Commission, including in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our most recently filed periodic reports on Forms 10-K and Form 10-Q, which are available on Monro’s website at http://www.Monro.com/Corporate/SEC-filings. Monro assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. This presentation contains references to Adjusted Earnings Per Share (EPS), which is a “non-GAAP financial measure” as this term is defined in Item 10(e) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 and Regulation G under the Securities Exchange Act of 1934. In accordance with these rules, Monro has reconciled this non- GAAP financial measure to its most directly comparable U.S. GAAP measure. Management views this non-GAAP financial measure as a way to assess comparability between periods. This non-GAAP financial measure is not intended to represent, and should not be considered more meaningful than, or as an alternative to, its most directly comparable GAAP measure. This non-GAAP financial measure may be different from similarly titled non-GAAP financial measures used by other companies.

Safe Harbor Statement and Non-GAAP Measures

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Company Overview

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▪ Dominant in the Northeastern U.S. and expanding in Southern and Western adjacent markets ▪ Fiscal 2018 sales of $1,127.8 million ▪ 1,184 company operated stores in 28 states and 97 franchised locations as of October 25, 2018 ▪ 29 acquisitions in the past 6 fiscal years, adding 386 locations, $520 million in revenue and entry into 8 new states ▪ 8 wholesale locations and 3 retread facilities A Leading Chain of Independently Owned and Operated Tire and Auto Service Locations

Store locations as of 3/31/18

A Strong Brand Portfolio

▪ 10 well-known regional brands underneath Monro’s corporate umbrella ▪ Operating two store formats in key markets − Service stores – 561 stores

• 80% maintenance services, 20% tires
• $600,000 a year in sales per store

− Tire stores - 623 stores (excluding wholesale)

• 60% tires, 40% service
• $1.2 million a year in sales per store

▪ 8 wholesale locations and 3 retread facilities

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Multiple Store Brand Strategy Driving Increased Store Density

Brand Portfolio Service Tire

A Unique Operating Model

Monro Has a Diversified Supply Chain, Sourcing High Quality, Low Cost Parts Direct and a Strong Portfolio of Tire Brands

TIRES PARTS

Secondary parts distribution: The following types of parts are sourced from various cities in China: ▪ Brake Rotors and Pads ▪ Filters ▪ Steering and Suspension ▪ Wipers ▪ Belts

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Store locations as of 3/31/18

A Favorable Industry Backdrop

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Favorable Industry Backdrop for Automotive Services with the Vehicles in Operation Expected to Grow Significantly Over the Next Five Years U.S. Annual Light Vehicle Sales Total Miles Traveled in U.S.

Source: FRED Economic data, Light weight Vehicle Sales: Autos and Light Trucks, Dec 2017 Source: Lang, IHS Markit, 2018. 2018 – 2022 are estimated figures

U.S. Light Vehicles in Operation (VIO)

200 210 220 230 240 250 260 270 280 290 300 2012 2013 2014 2015 2016 2017 2018* 2019* 2020* 2021* 2022*

Source: FRED Economic data, Moving 12-Month Total Vehicle Miles Traveled

▪ Growing total vehicle population from U.S. auto sales ▪ 270+ million vehicles on the road ▪ Increasing age of vehicles (average of ~12 years) ▪ Total annual miles driven up ~1.3% y/y ▪ Decreasing number of service outlets and bays ▪ Increasing complexity of vehicles ▪ Favorable demographics

Key Highlights

8 10 12 14 16 18 03 05 07 08 09 10 11 12 13 14 15 16 17 2,700,000 2,800,000 2,900,000 3,000,000 3,100,000 3,200,000 3,300,000 03 05 07 08 09 10 11 12 13 14 15 16 17

A Favorable Industry Backdrop

Vehicles in Operation – 0 to 5 Years Vehicles in Operation – 6 to 12 Years Monro is Well-Positioned to Capitalize on Positive Industry Trends, with Our Sweet Spot Experiencing the Fastest Growth in Vehicles in Operation

50 60 70 80 90 100 110 120 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

+6.56% CAGR

• .03% CAGR

▪ Strong growth in new vehicles (0-5 years) over the past 5 years is creating a significant tailwind for the 6-12 year old vehicle cohort for the next five years ▪ 6-12 year cohort expected to grow the fastest at +3.9% CAGR over the next five years ▪ Monro’s targeted market segment is the 6-12 year cohort

50 60 70 80 90 100 110 120

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

• 3.97% CAGR

+3.90% CAGR

Vehicles in Operation – 13+ Years

50 60 70 80 90 100 110 120 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

+4.27% CAGR +1.47% CAGR

Source for all data: Lang, IHS Markit, 2018

Key Highlights

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A Favorable Industry Backdrop

Monro Operates in the $230 Billion Do-It-For-Me* Segment of $287 Billion U.S. Automotive Aftermarket Industry Automotive Aftermarket DIFM vs. DIY Sales

50,000 100,000 150,000 200,000 250,000 300,000 2012 2013 2014 2015 2016 2017

DIFM DIY

Source: Autocare Association Factbook

2008 % (outlets) 2016 % (outlets) CAGR Dealers 20,770 15.6% 16,680 12.7% (2.7%) General Repair Garages 76,564 57.4% 80,071 61.1% 0.6% Tire Dealers 18,596 14.0% 19,822 15.1% 0.8% Specialty Repair 9,674 7.3% 7,040 5.4% (3.9%) Oil Change/Lube 7,649 5.7% 7,437 5.7% (0.4%) Total 133,253 100% 131,050 100%

Source: Autocare Association Factbook

▪ DIFM continues to gain share from DIY segment ▪ Vehicle complexity continues to drive shift to DIFM from DIY ▪ Future technology advances expected to accelerate shift to DIFM

DIFM vs. DIY Trends

▪ Fewer outlets/bays to work on more vehicles in

• peration in the U.S.

▪ Industry still highly fragmented, with significant

• pportunities for further consolidation

Key Highlights

* Includes Replacement Tire Segment

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Second Quarter Fiscal 2019 Highlights

▪ Comparable store sales increased by 3.2% compared to a decline of 0.4% in the prior year period ▪ Sales from new stores added $19.9M, including sales from recent acquisitions of $15.6M

Sustained Top-Line Momentum Driven by Accelerating Comparable Store Sales 2-Year Stacked Comps Trend Improvement3 Y/Y Comps Trend Improvement

▪ Brakes: 12% ▪ Tires: 3% ▪ Front End/Shocks: Flat ▪ Maintenance: Flat ▪ Alignments: -1%

• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%

Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18

2QFY19 Key Highlights 2QFY19 Key Highlights

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• 12.0%
• 10.0%
• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0%

Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18

1Results have been adjusted for the extra selling week 2Results have been adjusted for the Memorial Day holiday calendar shift 32-Year Stacked Comps represent the sum of the prior year and current year period comparable store sales performance

1 2 2 1 2 2

(Thru Oct. 25) (Thru Oct. 25)

A Scalable Platform: Recent Acquisitions

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Acquisitions Completed and Announced to Date in Fiscal 2019 Represent $80M in Annualized Sales

1Greenfield stores include new construction as well as the acquisition of one to four store operations

Announced Acquisitions

▪ Completed previously announced Pohlman Tire & Auto Service, Inc. acquisition in the third quarter ▪ Five retail locations in Ohio, filling in an existing market ▪ $5M in annualized revenue, breakeven to EPS in FY19 ▪ Sales mix of 70% service and 30% tires ▪ Signed definitive agreement to acquire 13 retail locations in the Southeast, filling in an existing market ▪ $12M in annualized revenue, breakeven to EPS in FY19 ▪ Sales mix of 65% service and 35% tires

Greenfield Openings1

▪ Added 8 greenfield locations during the second quarter

Driving Long-Term Sustainable Growth

Enhance Customer-Centric Engagement

• Customer retention
• Customer acquisition
• Omnichannel

Accelerate Productivity & Team Engagement

• Optimized store staffing model
• Clearly defined career path and

enhanced training program

• Aligned compensation

Improve Customer Experience

• Online reputation management
• Consistent in-store experience
• Consistent store appearance

Scalable Platform to Drive Sustainable Growth

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Investments in Technology and Data-Driven Analytics to Support Strategic Initiatives

Optimize Product & Service Offering

• Redefined selling approach
• Optimized tire assortment

Improve Customer Experience

 Improve SEO and local listing management  Effectively build and manage online presence

Online Reputation Management

 Deliver a best-in-class experience to all customers  Provide clear product choices and quality service to customers

Consistent In-Store Experience

 Modernize store layout  Establish clear standards for retail banners

Consistent Store Appearance

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Delivering a Five-Star Experience

 Focus marketing spend to higher ROI channels  Launch direct marketing via new analytic-based CRM platform  Enhance private label credit card offering  Use analytics to optimize digital efforts  Leverage market segmentation and demographic information to facilitate direct marketing to target customers  Upgrade website with mobile-capable architecture  Launch e-commerce capability for online tire purchases and installations in- store  Leverage preferred tire installer agreements to drive traffic

Enhance Customer-Centric Engagement

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Customer Retention Customer Acquisition Omnichannel

Omnichannel: Expanded Amazon.com Collaboration

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Expanded Collaboration With Amazon.com Supports Monro’s Online Tire Retailers Installation Strategy Expanded Amazon.com Collaboration

▪ Monro’s tire installation services available to customers who purchase tires

• nline from Amazon.com and select the Ship-to-Store option

▪ Initially launched in the greater Baltimore area, now available at nearly 400 locations operating under a number of Monro brands in Georgia, Florida, Illinois, Indiana, Ohio, Maryland, Michigan, New York, Tennessee and Virginia ▪ Collaboration will be expanded to provide tire installation services to Amazon.com customers at all of Monro’s retail locations across 28 states

Increased Traffic Driven by Integration with Online Tire Retailers

▪ 50% of these customers are new to Monro1 ▪ Can add newly acquired customers to CRM database, building long-term one- to-one relationships

1Reflects historical data based on existing relationships with online tire retailers

 Improve tire sales strategy to offer the right tires at the right price  Leverage data to optimize inventory assortment  Simplify invoices and inspection forms  Clearly defined ‘Good, Better, Best’ product options  Educate customers on new tire installation, brake and oil change service options

Optimize Product & Service Offering

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Optimized Tire Assortment Redefined Selling Approach

Future Present Past

Accelerate Productivity & Team Engagement

 Align store compensation model with performance  Incentives grow as sales, profits and customer experience improve

Aligned Compensation

 Achieve the right balance of labor and technical abilities across our stores  Implement data-driven store scheduling software

Optimized Store Staffing Model

 Attract, train and retain talented technicians and managers  Develop a comprehensive learning management system: Monro University

Clearly Defined Career Path and Enhanced Training Program

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Monro.Forward Progress Update

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 Continuing to execute customer satisfaction and online reputation management program across Monro’s store base  Focus on the in-store experience is having significant impact on Company online reviews and has increased “Star Ratings” to 4.7 Year-to-Date and 4.4 All-time

Improve Customer Experience

Monro.Forward Initiatives Well Underway and Advancing as Planned

3.7 4.0 4.2 4.3 4.4 4.1 4.5 4.7 4.7 4.7

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 YTD FY19*

Number of Reviews

Negative Neutral Positive End of Quarter All Time Star Rating FY Quarterly Rating

*Through 10/22/18

Monro.Forward Progress Update (Cont.)

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 Launched Monro playbook and store re-image initiative pilot in Rochester, NY in the beginning of 3QFY19  Modernized store layout to be rolled out across the Company’s markets and store formats

Improve Customer Experience

Monro.Forward Initiatives Well Underway and Advancing as Planned

Monro.Forward Progress Update (Cont.)

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 In 2QFY19, rolled out modernized corporate and retail websites and direct marketing through analytic-based CRM platform  Expanded collaboration with Amazon.com to over 400 stores in 3QFY19, supporting

• mni-channel strategy

Enhance Customer- Centric Engagement

 Optimized store staffing model after addressing overstaffed stores in 2QFY19  Monro University training courses to be launched in 3QFY19  Data-driven store scheduling and staffing software implementation on track for 1QFY20 launch

Accelerate Productivity & Team Engagement

 Continued ramp up of Good-Better-Best product and service packages following the successful launch in 1QFY19; corrected sub-optimal brake package pricing  Optimized tire sales and pricing strategy driving strength in tires

Optimize Product & Service Offering

Monro.Forward Initiatives Well Underway and Advancing as Planned

Scalable Platform to Drive Sustainable Growth

▪ Continue to increase store density in our 28 states ▪ Expand geographically into attractive markets ▪ On average, acquisitions represent the opportunity for 10% annual sales growth ▪ Acquisition growth drives scale and operating margin expansion, strengthening competitive advantages

Same Store Sales Growth

▪ Through Monro.Forward, drive higher customer retention and acquisition rates

Acquisitions

▪ Create value through profitable acquisitions

Greenfield Expansion

▪ Continue new store openings in existing markets ▪ ~20 to 40 stores per year A Scalable Business Model with Multiple Avenues for Growth

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A Proven M&A Strategy

Monro’s Acquisition Strategy Has Delivered Significant Growth Over the Years

Historical Acquisition Activity Average Acquisition Size

FY13 FY14 FY15 FY16 FY17 FY18 FY19 to date Number of locations 139 stores 20 stores 80 stores 35 stores and 134 franchise locations 78 stores, 4 wholesale locations and 2 retread facilities 28 stores 50 stores 15 Stores Annualized Sales growth ~$190 million ~$35 million ~$90 million ~$35 million ~$150 million $20 million $80 million ~$20 million

A Proven Track Record

▪ 45 acquisitions in the last 16 fiscal years, encompassing 681 locations and $900 million of revenue ▪ 29 acquisitions in the past 6 fiscal years, adding 386 locations and $520 million in revenue − Entered 8 new states, expanding our presence in the Southern and Western markets

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Higher Ticket From Improved In-Store Execution Drove Solid Top-Line Performance

Strong Second Quarter Fiscal 2019 Results

2QFY19 2QFY18 Δ 1HFY19 1HFY18 Δ Sales (millions) $307.1 $278.0 10.5% $602.9 $556.5 8.3% Same Store Sales 3.2%

• 0.4%

360 bps 2.5% 0.5% 200 bps Gross Margin 39.1% 38.8% 30 bps 39.3% 39.7% (40 bps) Operating Margin 11.2% 12.2% (100 bps) 11.2% 12.1% (90 bps) GAAP EPS $.65 $.52 25.0% $1.26 $1.05 20.0% One-time adjustments1 $.02 $.01 $.04 $.03 Adjusted EPS $.67 $.53 26.4% $1.30 $1.08 20.4%

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Free Service Acquisition Impact ▪ Wholesale locations acquired as part of the Free Service acquisition operate at a lower gross margin, primarily due to a higher sales mix of tires without installation Monro.Forward Initiatives Impact ▪ Incurred $.02 per share of one-time costs related to Monro.Forward investments during the second quarter ▪ Initiatives are progressing as planned for the remainder of the year

1Diluted earnings per share included $.02 of one-time costs related to Monro.Forward in the second quarter of fiscal 2019, compared to $.01 of management transition costs in the second quarter of fiscal 2018. In the first six months of fiscal 2019, there were $.04 of one-time costs

related to Monro.Forward, compared to $.03 of management transition costs in the first six months of fiscal 2018.

Fiscal 2019 Outlook1

FY19 FY18 Δ Sales (millions) $1,185 to $1,215 $1,128 5.1% to 7.7% Same Store Sales (on a 52-week basis) +1% to +3%

• 0.1%

110 bps to 310 bps GAAP EPS $2.30 to $2.40 $1.92 20% to 25%

Delivering Growth Today While Investing for Tomorrow

Operating Margin

▪ Assumes operating margin of 11.1% at midpoint of FY19 sales guidance (11.4% excluding FY19 acquisitions announced and completed to date) ▪ Expect stable tire and oil costs year-over-year ▪ Expect to generate earnings increase on a comparable store sales increase above 1.0%

Tax Savings

▪ Estimate ~$.40 tax benefit from newly enacted tax legislation ▪ Tax rate expected to be reduced from ~37% to ~23% in FY19

Reinvestment of Tax Savings

▪ Reinvestment of ~30%, or ~$.13, to support Monro.Forward strategy ($.09 of recurring expenses and $.04 of one-time items in FY19): – Improve Customer Experience – (~$.04) – Enhance Customer Engagement – (~$.01) – Accelerate Productivity & Team Engagement – (~$.08)

Additional Guidance Assumptions (at the midpoint)

▪ Interest expense of $29 million ▪ Depreciation and amortization of $55 million ▪ EBITDA of approximately $187 million ▪ 33.6 million weighted average number of diluted shares outstanding 23

Stores and Weeks

▪ Guidance includes recently announced and completed acquisitions and excludes any additional potential acquisitions ▪ Guidance includes eight ground-up greenfield store openings in FY19 ▪ FY19 represents a 52 week year compared to 53 weeks for FY18

1Guided to upper end of fiscal 2019 comparable store sales and reiterated EPS guidance on October 25, 2018

Fiscal 2019 Outlook – Capital Investment

Incremental Capital Spending Focused Primarily on Store Refresh Pilot and Early Rollout Second Half of FY19

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Refresh Light Refresh Renovation Light Renovation Renovation Plus

Store Refresh Initiative

▪ Appropriate level of investment driven by store age, size and market demographics ▪ 30 store pilot started in Q3 FY19

Capital Investment Area

(Capital Spending by Area, $ in Million)

4.3 5.4 29.3 26.8 1.7 9.4 3.8 5.4

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY18 Actual FY19 Estimate

IT Infrastructure Monro.Forward Store Re- Image Other New Stores

$39.1 $47.0

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% FY19E FY21E

4.0% + 2.0%

10.5% 11.0% 11.5% 12.0% 12.5% 13.0% FY19E FY21E

12.0%+ 11.1%

SSS Improvement Operating Margin Expansion

Three-Year Organic Growth Financial Targets

Accelerating Same Store Sales Growth Drives Operating Leverage and Double Digit Earnings Growth  Accelerate from 2% to above 4%

Same Store Sales Growth

 Return to 12%+ Operating Margin

Operating Margin Expansion

 Deliver Consistent 10% - 15% Earnings Growth

Earnings Per Share Growth

Note: Financial targets exclude any future potential acquisitions

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Disciplined Capital Allocation

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Executing on Growth Strategy While Maintaining a Disciplined Approach to Capital Allocation Investing in the Business ▪ 1HFY19 capex of $21.7M ▪ Continue to expect ~$75M of incremental CapEx over the next 5 years to invest in store re-image and technology Returning Cash to Shareholders ▪ In 1HFY19, paid $13.4M in dividends ▪ Currently $.20 per share quarterly, an increase of 11% from 2QFY18 Executing on M&A Opportunities ▪ In 1HFY19, spent $39.1M on acquisitions ▪ Signed definitive agreements to acquire 18 stores, bringing annualized sales from fiscal 2019 acquisitions to $80M Utilizing Strong Balance Sheet ▪ In 1HFY19, generated $76.0M of operating cash flow ▪ Debt-to-EBITDA ratio as of September 2018 of 2.2x provides significant flexibility to fund M&A strategy

Investment Highlights

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▪ Leading chain of Company-operated undercar care facilities in the U.S. with a wide breadth of product and service offerings ▪ Strong market position in Northeast, Great Lakes and Mid-Atlantic with a presence in 28 states ▪ 17 years of consecutive annual sales growth ▪ Low cost operator with strong operating margins ▪ Well-positioned to capitalize on a favorable industry backdrop ▪ Monro.Forward strategy creating a scalable platform to drive sustainable growth, with a focus on operational excellence to increase overall customer lifetime value ▪ Significant growth opportunity to execute disciplined acquisition strategy in a highly fragmented industry ▪ Strong balance sheet and cash flow ▪ Delivering consistent shareholder returns with thirteen dividend increases, every year since a cash dividend was initiated

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Appendix

Q2 FY19 Q3 FY19 Q4 FY19 Q2 FY20 Q3 FY20 Q4 FY20 Q4 FY18

FY20 FY19 FY21

Monro.Forward Strategic Initiatives

Pilot store refresh &

• perational

excellence New store comp plans Monro University (includes career path, LMS) Technology based in-store experience Data-driven “new customer” marketing Monro omnichannel & e-commerce Store staffing & scheduling system

Improve Customer Experience Enhance Customer- Centric Engagement Optimize Product & Service Offering Accelerate Productivity & Team Engagement

Foundational technology & tools New in-store sales packages Scheduled maintenance in-store selling Data-driven CRM New websites Tire category management

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Scale store refresh & operational excellence

= Completed Initiatives

Fiscal 2019 Outlook – EPS Bridge

Note: Guidance bridge based on midpoint of FY19 EPS guidance

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($0.07) ($0.13) $1.98 $0.17 $0.40 $0.02 $2.35 $1.65 $1.90 $2.15 $2.40 FY18 Adjusted EPS 2% Comp Sales Increase Inflation Initiative Investments FY19 Tax Reform Impact FY18 Acquisitions Other FY19E GAAP EPS ($0.02)